Wednesday, August 7, 2013

Neratel : Selldown Unwarranted As Share Sale Misconstrued (RHB)

The market has reacted negatively to the recent sale by NeraTel CEO Mr Samuel Ang of all the company’s shares under his name. To the contrary, however, our checks show that Mr Ang actually raised his stake as the parent PE fund, Northstar, has allowed him to hold a bigger stake in NeraTel as an incentive to retain him. Reiterate BUY, with a higher SGD0.93 TP, based on a 11.4x blended FY13/14 P/E (+1 SD).

• Market misconstrues sale; CEO effectively raises stake. We believe that the market has misconstrued the shares sale by NeraTel CEO, Mr Ang, and missed one detail. While Mr Ang has disposed of all shares under his name, he now has interest in Asia Systems Ltd (Northstar’s investment vehicle), the largest shareholder in NeraTel. In line with Northstar’s interest to offer incentives and retaining Mr Ang, our checks show the CEO has effectively increased his stake in NeraTel.

• Northstar’s shining track record enhances long term prospects. Northstar, the parent of NeraTel, is an Indonesian USD1.2bn private equity firm with a long and solid track record in partnering with institutional giants such as GIC and TPG. Its recent deals are the Indonesian national bank TPN’s exit, from which sources confirm that Northstar stood to make a 7x gain. Similarly, Northstar has also set a target for NeraTel to double its profits in three years. As such, we deem NeraTel’s future still bright.

• Expecting strong 2QFY13 results. We expect the company to continue with its trend of delivering solid results in 2QFY13. The strong core profits will be underpinned by full contribution from Nera Malaysia as well as spillover revenue from the telco projects delivered in 1Q. The group is also expected to recognize the exceptional gains arising from Nera Malaysia’s acquisition in this quarter, which will boost the final numbers.

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